Searching over 5,500,000 cases.


searching
Buy This Entire Record For $7.95

Official citation and/or docket number and footnotes (if any) for this case available with purchase.

Learn more about what you receive with purchase of this case.

In re General Motors Co. Derivative Litigation

Court of Chancery of Delaware

June 26, 2015

IN RE GENERAL MOTORS COMPANY DERIVATIVE LITIGATION

Submitted: March 26, 2015

Robert J. Katzenstein and David A. Jenkins, of SMITH KATZENSTEIN & JENKINS LLP, Wilmington, Delaware; Robert D. Goldberg, of BIGGS AND BATTAGLIA, Wilmington, Delaware; OF COUNSEL: Nancy Kaboolian, of ABBEY SPANIER, LLP, New York, New York; Robert I. Harwood, Daniella Quitt, and Samuel K. Rosen, of HARWOOD FEFFER LLP, New York, New York; Gary S. Graifman and Reginald H. Rutishauser, of KANTROWITZ, GOLDHAMER & GRAIFMAN, P.C., Chestnut Ridge, New York; Peter Safirstein, Domenico Minerva, and Elizabeth Metcalf, of MORGAN & MORGAN, P.C., New York, New York, Attorneys for Plaintiffs.

William M. Lafferty, Susan W. Waesco, and Lauren K. Neal, of MORRIS NICHOLS ARSHT & TUNNELL LLP, Wilmington, Delaware, Attorneys for Individual Defendants.

Lisa A. Schmidt and Robert L. Burns, of RICHARDS, LAYTON & FINGER, P.A., Wilmington, Delaware; OF COUNSEL: Robert J. Kopecky and Joshua Z. Rabinovitz, of KIRKLAND & ELLIS LLP, Chicago, Illinois, Attorneys for General Motors Company.

MEMORANDUM OPINION

GLASSCOCK, Vice Chancellor

The factual scenario underlying this matter is sadly familiar. An iconic American company produces a product or service that goes terribly awry, causing the company financial and reputational damage, and perhaps doing damage to society at large as well. A stockholder of the company wishes to sue derivatively on behalf of the company, to recoup its losses by holding directors liable under theories of breach of fiduciary duty. Because this potential lawsuit is a chose in action belonging to the corporation, whether to pursue it is within the business judgment of the board of directors. In order to bring the suit derivatively, under Court of Chancery Rule 23.1 the stockholder must plead facts demonstrating that a demand to bring the action was improperly refused, or, more typically, would be futile.

The requirement that plaintiffs demonstrate futility is-must be-rigorous.[1] The purpose of Rule 23.1 is to prevent frivolous usurpation of a core director function by a stockholder, with all the distraction and chaos that would portend. If a mere allegation of liability on the part of the directors were enough to demonstrate a disabling self interest, conclusory allegations of breach of director duty would eat the rule whole, in a single bite. There is, of course, a whiff of irony, even tautology, in a Court determining, at the pleading stage, whether it would be futile to ask a director to decide, on behalf of her principal, to sue herself. This Court, and our Supreme Court, have endorsed different approaches to this problem in different situations;[2] all, however, distill to the following principle: To survive a challenge under Rule 23.1, the complaint must make sufficient non-conclusory allegations to raise a reasonable doubt in the mind of the Court that a majority of the directors can exercise its business judgment on behalf of the corporation, in light of the directors' alleged conflicted interests.

Here, the results of the corporate activity in question are particularly distressing. This case involves ignition switches engineered and used by America's largest automaker, General Motors ("GM"), some of which malfunctioned during use of the automobiles by consumers. This has led to monetary loss on the part of the corporation, via fines, damages and punitive damages from lawsuits; reputational damage; and most distressingly, personal injury and death to GM customers. GM has been and will be held liable for any wrongdoing in the engineering and deployment of these ignition switches. The Plaintiffs here, GM stockholders, wish to recoup some of the loss on behalf of the corporation itself, alleging that the directors breached their duty of loyalty by failing to oversee the operations of GM. They failed to make a demand that the company bring this action, therefore, they must show that such a demand would have been futile, or face dismissal. The Plaintiffs have used section 220 to obtain corporate records to strengthen their pleadings; nonetheless, in my view, they have failed to raise a reasonable doubt that GM's directors acted in good faith or otherwise face a substantial likelihood of personal liability in connection with the faulty ignition switches. Accordingly, GM's motion to dismiss under Rule 23.1 must be granted. The facts and my analysis are below.

I. BACKGROUND FACTS [3]

In February 2014, GM issued its first of what would be 45 recalls over the next several months, covering a total of 28 million vehicles. Approximately 13 million vehicles were recalled due to issues with the ignition switch, including, among other model types, the Chevrolet Cobalt and Pontiac G5 of certain model i years. Specifically, the Plaintiffs explain, this ignition switch defect involved "the inability of the ignition to keep a car powered on by slipping from the 'run' mode to the 'accessory' mode, generally due to a modest bump to the key fob."[4] This caused the vehicle's engine and electrical system to shut off, which disabled power steering and power brakes, and also caused the vehicle's airbag to not deploy in the event of a crash. The ignition switch defect has been implicated in a number of serious injuries and deaths.

The cost of recalls resulted in a total of approximately $1.5 billion charges against earnings through the first and second quarters of 2014. GM has also set up its Ignition Compensation Fund (the "Fund") to compensate victims of accidents caused by its vehicles' faulty ignition switches; at the time of the Complaint, the Fund had approved 23 death claims and 16 injury claims, and had received 1, 130 total claims. The Fund has no cap on overall payments.

"Shortly after this recall was announced, GM also disclosed that information relating to the defect had been known to certain engineers and other employees within the company for a number of years."[5] As a result of the defects and recalls, GM is the subject of a number of products liability and personal injury lawsuits, class actions, two Congressional investigations, and a criminal investigation by the U.S. Department of Justice. GM paid $35 million to the government in fines, the maximum civil fine and the highest in history, for its violation of the National Traffic and Motor Vehicle Safety Act of 1996 (the "Safety Act").

The Plaintiffs seek to hold GM's board of directors (the "Board") personally liable in connection with these losses, not because the Board was complicit in the defect, but because it did not know about it until February 2014. Specifically, the Plaintiffs allege that the Board lacked a process by which it would be advised of National Highway Traffic Safety Administration ("NHTSA") inquiries and the responses thereto. More generally, they argue that the Board lacked a mechanism by which it received information about safety risks and the risk of punitive damages in pending litigation.

The Plaintiffs allege that demand in this case would be futile because a majority of the Board is disabled from considering demand due to a substantial likelihood of personal liability in connection with their failure to oversee GM.

A. The Parties

1.Plaintiffs

The Plaintiffs are GM stockholders and have continuously maintained their ownership since November 2010, which the Plaintiffs define as the relevant period.

2.Current Director Defendants

Mary T. Barra has been the Company's Chief Executive Officer and a member of the Board since January 15, 2014. She was previously the Executive Director of Vehicle Manufacturing Engineering of Old GM until July 2009, Senior Vice President of Global Product Development at the Company from February 2011 to August 2013, and then Chief of Product Development. Prior to 2009, Barra also "had management responsibilities in various engineering and staff positions at the Company."[6]

Theodore M. Solso, who has been a member of the Board since June 2012, is currently its non-executive chairman. He is also on the Audit Committee.

Stephen J. Girsky has been a member of the Board since July 2009. Girsky has been Vice Chairman of Corporate Strategy, Business Development, Global Product Planning, and Global Purchasing and Supply at GM since February 2011, and Vice Chairman of Corporate Strategy and Business Development since March 2010.

Patricia F. Russo has been a member of the Board since July 2009 and has served as its Lead Director since March 2010.

Thomas M. Schoewe has been a member of the Board since November 2011 and is the chairman of the Audit Committee.

Erroll B. Davis, Jr. has been a member of GM's board since July 2009 and was a member of "Old GM's" Board[7] from 2007 to 2009. He is a member of GM's Audit Committee.

Kathryn V. Marinello has been a member of GM's Board since July 2009. Marinello also served on Old GM's Board from 2007 to 2009. Marinello has served as a member of GM's Audit Committee since at least 2010.

E. Neville Isdell has been a member of GM's Board since July 2009 and previously served on Old GM's Board from 2008 to 2009. Isdell is also a member of the Audit Committee.

Carole M. Stephenson has been a member of the Board since July 2009.

James J. Mulva has been a member of the Board since June 2012.

Admiral Michael G. Mullen has been a member of the Board since February i 2013 and is a member of the Audit Committee.

Mullen, together with Mulva, Stephenson, Isdell, Marinello, Davis, Shoewe, Russo, Girsky, Solso, and Barra are the "Current Director Defendants."

3. Former Director Defendants

Daniel F. Akerson joined the Board in 2009. He was the Chairman and Chief Executive Officer from January 2011 until January 2014, and Chief Executive Officer from September 2010 to January 2014.

David Bonderman joined the Board in July 2009 and served as a director until June 10, 2014.

Robert D. Krebs joined the Board in July 2009 and resigned in June 2014. Krebs was a member of the Audit Committee.

Philip A. Laskawy joined the Board in July 2009 and served as a director until June 2013.

Cynthia A. Telles joined the Board in April 2010. She served as a director until June 2014.

Telles, Laskawy, Krebs, Bonderman, and Akerson are the "Former Director Defendants, " which, along with the Current Director Defendants, comprise the "Director Defendants."[8]

4. Nominal Defendant

GM is a Delaware corporation with its primary place of business in Detroit, Michigan. GM designs, builds, and sells vehicles and automobile parts worldwide, with operations in over sixty countries.

On July 5, 2009, following bankruptcy proceedings, the United States Bankruptcy Court for the Southern District of New York issued a Sale Order and Injunction (the "Asset Sale"), approving the sale of substantially all of "Old GM's" assets prior to bankruptcy to a new government-sponsored company, which is the "GM" referred to in this Opinion. GM assumed Old GM's liability for warranty and products liability claims asserted by individuals who were injured after the Asset Sale.[9] "Old GM's board was reconstituted" and six of the twelve Current Director Defendants joined the Board in 2009.[10] GM emerged from bankruptcy on July 10, 2009, and launched an initial public offering on November 17, 2010.

B. Valukas Report

In April 2014, in the months after the first recalls, the Board retained a partner at the law firm Jenner & Block, Anton Valukas, to

investigate the circumstances that led up to the recall of the Cobalt and other cars due to the flawed ignition switch . . . and return to Ms. Barra and the Board with the unvarnished truth about what happened, why it happened, and what GM should do to ensure that it never happens again. [Valukas' law firm] was also asked to focus on the knowledge of specific senior executives, as well as GM's Board.[11]

In his report (the "Valukas Report"), Valukas concluded that "no single committee of the Board was responsible for all vehicle safety-related issues, " and that ''''the Board of Directors was not informed of any problem posed by the Cobalt ignition switch until February 2014."[12] He also found that, as the Plaintiffs allege, "the system put in place by the Board did not require that serious defects detected by GM's legal department, its engineering department, consumer protection organization, or law enforcement agencies be reported to the Board."[13] Valukas concluded that the Board "did not discuss individual safety issues or individual recalls except in rare circumstances, " though it did receive "a wide variety of reports, " and that the litigation reports to the Board did not mention ignition switch or airbag issues.[14]

The Valukas Report made note of reports to GM's in-house legal department, discussed in greater detail below, from which the Plaintiffs allege that, as early as October 2010, GM's management and legal departments had reason to know that a defect was causing serious accidents, but the information was not escalated to the Board.[15] More generally, the Plaintiffs contend, the Valukas Report describes GM's "phenomenon of avoiding responsibility, " embodied in the so-called "GM salute, " which involved "a crossing of the arms and pointing outwards towards others, indicating that the responsibility belongs to someone else, not me."[16]

Although they rely on its factual background and some of its conclusions in the Complaint, the Plaintiffs take issue with the engagement of Valukas given his, and his firm's, past relationship with GM.[17] They also criticize his report for what it does not mention-the former CRO and why his position was transferred to the General Auditor, as well as the elimination of the Finance and Risk Committee.[18] The Plaintiffs also note criticism by Senator Richard Blumenthal of Connecticut, who observed that the Valukas Report "continues to leave critical questions unanswered" and "absolves upper management, denies deliberate wrongdoing, and dismisses corporate culpability."[19]

C. GM's Regulatory Environment

As noted above, GM is subject to the Safety Act, pursuant to which manufacturers of motor vehicles have a duty to notify NHTSA, purchasers, and dealers if the manufacturer learns that a vehicle contains a defect, which it decides in good faith to be related to vehicle safety.[20] The manufacturer must provide this notice within five working days after the determination that the defect is related to safety.[21]

In addition, GM is subject to the Transportation Recall Enhancement, Accountability and Documentation Act (the "TREAD Act"). The Plaintiffs note that the purpose of the TREAD Act "was to increase consumer safety through mandates assigned to NHTSA, " and it was passed in 2000 in response to fatalities related to defects in Ford vehicles with Firestone tires.[22] Now incorporated into the Safety Act, the TREAD Act contains an "Early Warning" requirement, which allows "NHTSA to collect data, notice trends, and warn consumers of potential defects in vehicles."[23] Failure to comply with the TREAD Act reporting requirements may result in monetary or criminal penalties.[24]

D. The Board's Risk Oversight in 2010-2011

The Plaintiffs allege that the relevant time is from November 2010, "the date Plaintiffs assert the Board's bad faith actions commenced" to present.[25]Throughout this time, they allege, the Board "violated its fiduciary duties to stockholders by 'sticking its head in the sand.'"[26] A brief overview of the Plaintiffs' allegations during this time period follows.

The Board created the Finance and Risk Committee on August 3, 2010. The Finance and Risk Committee was composed of defendant directors Bonderman, Girsky, Krebs, Laskawy, and Russo as of April 21, 2011. Marinello and Shoewe joined later. Through its Charter, the Committee was required to "review internal systems of formal and informal communication across business units and control functions to encourage the prompt and coherent flow of risk-related information and, as needed, escalation of information to management (and to the Committee and Board as appropriate)."[27] The Committee was also responsible for cash flow and working capital management, employee benefits plans, foreign exchange and interest rate product use, insurance issues, tax planning, and strategic investments.

The Board created the position of Chief Risk Officer (the "CRO") in October of 2010. The CRO "was to be responsible for identifying the Company's risks and stress testing key risk scenarios, " and had the "responsibility of coordinating the Company's risk management and mitigation strategies, " reporting to the Finance and Risk Committee.[28] The CRO was assisted in these functions by the General Auditor. In November 2010, GM appointed Grant Fitz as CRO.

In an October 2010 meeting, Fitz sought to "facilitate discussion on the Board risk oversight process, as well as how best to structure a risk management program for General Motors."[29] In the section entitled "Next Steps Going Forward, " the Committee was informed that, "[w]hile some improvement has occurred, GM has not had a consistent and structured approach that actively manages important risks and drives timely action."[30] This statement appeared under the heading "Background on GM's Risk Management Initiative and Business Rationale, "[31] though the Plaintiffs contend this was a warning to the Board.[32] The presentation also informed the Board that "[p]riority risks will be reported directly to the Board or the most relevant Board Committee."[33]

The next Finance and Risk Committee meeting was held in December 2010, at which time Fitz indicated that the "General Plan for Rolling Out Risk Management" was "to start simple, " though he identified a plan for the quarter, the following year, and the following three years.[34] Fitz designated two individuals to be in charge of reporting quality risk, defined as "[m]ajor or chronic product problems [which] result in a large product recall and warranted expenses and significant negative publicity."[35] Barra was identified as the "executive owner" of "culture change risk."[36]

In a March 2011 Finance and Risk Committee meeting, Fitz told the Committee that the current focus was to "develop action plans for the Top 25 Risks" and to "begin to work to identify the unknown risks."[37] In a May 2011 Finance and Risk Committee meeting, Fitz stated risk management was "moving to identify the unknown risks that could impact the Company, " and the risk owners of the Top 25 risks were still in the process of developing plans to address those previously identified risks.[38] The Plaintiffs contend, "[t]here remained no sense of urgency, "[39] despite the fact that, [a]t this juncture, in the Spring of 2011, the Board [through the Audit Committee] knew that management 'did not have the knowledge and/or skill sets to perform risk assessments and to develop risk mitigation strategies.'"[40]

Plaintiffs contend that throughout all of these meetings, the Board and the Finance and Risk Committee took no affirmative steps to insure that they were receiving important safety risk or reporting information, despite what they characterize as Fitz's "repeated warnings" that the Company lacked a "consistent and structured approach that actively manages important risk and drives timely action."[41]

E. Board Oversight of Risk Management after Fall 2011

1. Reassignment of Risk Oversight Responsibilities

The Plaintiffs contend that "after receiving alarming reports about failures in the risk management system [that is, after receiving the reports recounted above], the only swift action the Board took was to eliminate the CRO job as a discrete position."[42] In November 2011, approximately a year after Fitz was appointed CRO, the Board transferred the CRO's responsibilities to the General Auditor, Brian Thelen, who had served as General Auditor since August. The General Auditor was, before November, tasked with assisting the CRO.[43] Thelen retained all of his prior responsibilities as General Auditor as well as taking on the position of CRO, [44] which the Plaintiffs contend may have resulted in a conflict of interest, due to the General Auditor's responsibility of objectively reviewing risk management, which "called for him to audit himself."[45] There was no separate CRO again until several months after the recalls.

In August 2012, approximately two years after its creation, the Board eliminated the Finance and Risk Committee. Risk management oversight was subsequently transferred to the Audit Committee. The Plaintiffs contend that GM knew and had previously determined that putting risk management responsibility on the Audit Committee did not represent best practices, and would be an ineffective oversight mechanism.[46]

The Plaintiffs point to certain responsibilities listed in the Finance and Risk Committee Charter that were not included in the Audit Committee's new Charter:

• Review with management the categories of risk the Company faces, including any risk concentrations and risk interrelationships, as well as the likelihood of occurrence, the potential impact of those risks and mitigating measures;
• Review with management the design of the Company's risk management functions, including potential coverage gaps and reporting lines of authority, to assess whether they are appropriate given the Company's size and scope of operations;
• Review internal systems of formal and informal[] communication across business units and control functions to encourage the prompt and coherent flow of risk-related information and, as needed, escalation of information to management (and to the Committee and Board as appropriate).[47]

Thus, the Plaintiffs contend, these responsibilities were never transferred.[48] The record, however, shows that Thelen, in his capacity as CRO, presented risk management topics to the Audit Committee, which included, for example, discussion of the process for identifying top risks; discussion of whether the Board, another committee, or the Audit Committee would take up certain risks; discussion of certain risk management activities in specific business units, including stress tests; and a discussion of "a project of cross leveraging many of the risk activities that are already occurring in the Company, " which entailed the risk management team "identify[ing] and cataloging] current risk assessments, assessing] gaps and overlap in coverage, " among other things, with a goal of "increasing] efficiency and effectiveness" of risk management.[49]

2. Board Oversight post-Risk Reassignment

The Plaintiffs allege that the elimination of the Finance and Risk Committee "facilitated an environment and culture that discouraged individuals from raising safety concerns and reporting them to senior management."[50] To this point, they note that, "in materials that assessed GM's risks as of 2013, the Board was warned as follows":

GM may not have a high performance culture, grounded in strong ethical behavior, that provides accurate performance feedback and ratings to employees, promotes accountability, innovation, adaptability and appropriate risk taking and regards customers and diversity as key business imperatives.[51]

Ultimately, in June 2014, the Board approved amendments to GM's bylaws creating the Operating Risk Committee, a stand-alone risk committee.

F. Company-Level Processes and Activity

1. Vehicle Safety and NHTSA Reporting

GM maintains a TREAD database, and has done so since the inception of the TREAD Act in 2000, in which the Company stores data required to be reported to NHTSA. The database drew from a variety of sources, including service requests, technical assistance repair orders from dealers, surveys, field reports, and a system maintained by the legal department that tracks relevant complaints filed in court, but "did not, however, contain GM's Problem Resolution and Tracking System ... or Service Bulletins."[52] The database was organized to track and report data in categories covering 24 different vehicle systems. The database included a description of action taken to fix a given problem, but did not give a detailed description of the problem with a particular part.[53]

The Valukas Report concluded that "until 2014, the TREAD Reporting team did not have sufficient resources to obtain any of the advanced data mining software programs available in the industry to better identify and understand potential defects."[54] Specifically, by the end of 2013, notice of the ignition switch problem had reached GM's Executive Field Action Decision Committee, but "once there, more questions were raised about root cause, and the decision-makers were hamstrung by a lack of accurate data about what vehicles were affected and how many people may have been impacted by the defect."[55]

The Plaintiffs point to problems with these systems, which were apparent prior to the ignition switch issues. For example, the Plaintiffs point to a July 23, 2013 email from a NHTSA director to Carmen Benavides, GM's Director of Product Investigations, Safety Regulations & Certification, Field Performance. The email stated that "[t]he general perception is that GM is slow to communicate, slow to act, and, at times, requires additional effort . . . that we do not feel is necessary with some of your peers, " providing six specific examples of such delay.[56] Benavides shared the email with others, including certain members of management, who "indicated a 'need to address this immediately.'"[57]

2. Legal Department

GM maintains a large in-house legal department which regularly reviews product liability cases brought against the Company. Any settlement for a products liability action between $100, 000 and $1.5 million required the approval a department committee known as the "Roundtable, " which met weekly. Any settlement between $1.5 million and $5 million required the approval of the Settlement Review Committee, which met monthly. Any larger settlement had to be approved by GM's General Counsel, then Michael Millikin.

Millikin testified that he did not know of the ignition switch defect until February 2014, and he had not been aware of any litigation involving fatal accidents linked to that defect. The Plaintiffs point to a number of earlier warnings that should have been, but apparently were not, elevated to the General Counsel and the Board, as briefly set forth below.[58]

As noted above, GM's legal department received reports from outside counsel at King & Spalding in early 2010 and then again in mid-2011 regarding litigation where a "sensory anomaly" led to a failure of the airbags to deploy; the firm noted the potential in that litigation for punitive damages.[59]

The first of these cases was discussed during a GM legal Roundtable, but there was no report to the General Counsel or to the Board. By the time of the July 2011 warning, the Plaintiffs allege, the legal department had determined that the issue needed to be addressed, but the Board was not alerted to the problem, in the absence of a clear mechanism for such reports, and any issue was conveyed only to low-level investigators. Plaintiffs contend that the Board failed to create a policy or procedure for reporting outside counsel warnings of punitive damages to the Board or General Counsel.

In an April 2012 report, the law firm Eckert Seamans, serving as outside counsel, drew a connection between the ignition switch issue and the non-deployment of airbags. Eckert Seamans also warned of the possibility of punitive damages because of the accident's connection with other non-deploying airbags in the 2005-2007 Cobalt. Eckert Seamans submitted another very similar report based on a different accident in August 2012.

In June 2012, Erin Shipp, an expert for plaintiffs in a products liability case against GM, opined that GM's "improper design resulted in a vehicle that was defective in a manner that caused the airbags to not deploy in a crash that [GM] has determine[d] should have had an airbag deployment, " because "the airbag system is . . . not active in the accessory position."[60] In both of these cases, notice of the warnings and reports did not escalate to the Board, and Plaintiffs contend that the Board did not require such an escalation. In July 2012, GM's outside counsel advised the legal department that GM would lose this case, and that as the Cobalt issues remained unresolved, punitive damage exposure would increase.

In April 2013, another plaintiffs' expert in a fatality case, Mark Hood, determined that the ignition switch had been changed in 2006. In May 2013, King and Spalding concluded that "a jury would almost 'certainly' find that the ignition switch was unreasonably dangerous."[61] This case settled for the maximum $5 million that GM could pay without approval by the General Counsel; thus, neither Millikin nor the Board learned of this report.

As Valukas concluded,

the story of the Cobalt is one in which GM personnel failed to raise significant issues to key decision-makers. Senior attorneys did not elevate the issue within the legal chain of command to the General Counsel even after receiving the . . . evaluation in the summer of 2013 that warned of the risk of punitive damages.[62]

The Plaintiffs contend that the "Board prevented [Board-level reporting] from happening by failing to put into place common procedures and policies for the escalation of issues involving serious defects, large investigations, and punitive damages."[63]

G. The 2014 Recalls and NHTSA Consent Order

On February 7, 2014, GM notified NHTSA that it had found a defect related to motor vehicle safety in model years 2005-2007 Chevrolet Cobalt and model year 2007 Pontiac G5. The report stated that the condition involved the vehicles' ignition switch, which would move from the "run" position to the "accessory" position, especially if the vehicle or ignition switch receives some impact, resulting in a loss of power, which could, in turn, cause the airbag not to deploy. On February 25, 2014, GM notified NHTSA that an additional 748, 024 vehicles contained the same defect. On March 28, 2014, GM submitted a third defect notice, indicating that the same ignition switch defect may be present in some additional 823, 788 vehicles that were recalled.

On May 16, 2014, GM entered into a Consent Order with NHTSA, in which "GM admitted] that it violated the Safety Act by failing to provide notice to NHTSA of the safety-related defect that is the subject of the Recall No. 14V-047 within five working days as required by 49 U.S.C. § 30118(c)(1), 49 U.S.C. § 30119(c)(2), and 49 C.F.R. § 573.6(b)."[64]

GM also agreed to pay a civil penalty of $35 million, which NHTSA announced as "the single highest civil penalty amount ever paid as a result of a NHTSA investigation of violations stemming from a recall."[65] NHTSA noted that one reason for the large fine was that

[b]oth in 2007 and again in 2010, NHTSA reviewed data related to the non-deployment of airbags in certain Chevy Cobalt models but each time, determined that it lacked the data necessary to open a formal investigation. . . . GM failed to advise NHTSA of this defect at the time of [these] earlier reviews.[66]

Additionally, the Plaintiffs allege, GM was fined an additional $7, 000 per day for each day between April 4, 2014 and the date on which GM provided the Valukas Report to NHTSA, because GM failed to respond to one of NHTSA's Special Orders by an April 3 due date.[67]

Finally, NHTSA required GM to provide a comprehensive written plan regarding completion of the ignition switch recall; to provide NHTSA with quarterly written reports, in addition to biweekly reports of its progress on the recall, for six months following the Consent Order, and to meet with NHTSA on a monthly basis for one year to discuss the implementation of the recommendations in the Valukas Report.

H. Aftermath

GM established a procedure "for its employees to report expeditiously concerns regarding actual or potential safety defects, or non-compliance with Federal Motor Vehicle Safety Standards."[68] The Plaintiffs allege that "[t]he fact that the Company was required by NHTSA to establish this procedure indicates that GM and the Board did not have [such] a procedure in place."[69]

The Plaintiffs also cite to a number of public comments condemning GM; for example, Acting NHTSA Administrator David Friedman posited that "GM's decision-making, structure, process and corporate culture stood in the way of safety."[70]

Media reports also shed light upon GM's failure to report the defect earlier. For example, The New York Times reported on July 15, 2014 that when NHTSA asked GM to explain the circumstances surrounding certain crashes to help identify potential defects, "[GM] repeatedly found a way not to answer the simple question from regulators of what led to a crash. In at least three cases of fatal crashes . . . GM said it had not assessed the cause, " or "GM opts not to respond."[71] The report noted, "These responses came even though [GM] had for years been aware of sudden power loss in the models involved in the accidents."[72]


Buy This Entire Record For $7.95

Official citation and/or docket number and footnotes (if any) for this case available with purchase.

Learn more about what you receive with purchase of this case.